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Understanding Flexible Budgets and Overhead Analysis in Financial Management

This chapter explores the concepts of flexible budgets and overhead analysis, emphasizing their importance in financial management. It covers static and flexible budgets, overhead performance reports, and key variances such as variable and fixed overhead rate assessments. Learn how to analyze budget performance through variances, including spending and efficiency variances, and understand the implications of under- and over-applied overhead. The text highlights essential problems for practice, key concepts to review, and additional resources for deeper learning.

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Understanding Flexible Budgets and Overhead Analysis in Financial Management

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  1. Chapter 11 Flexible Budgets and Overhead Analysis

  2. Flexible Budgets • Static budgets • Flexible budgets • Flexible budget overhead performance report (read) Problem 11 – 19 page 512

  3. Overhead Analysis • Denominator level of activity using the flexible budget • Predetermined overhead rate based on denominator level of activity • Applying overhead at standard • Variable overhead rate • Fixed overhead rate

  4. Variable Overhead Analysis • Variable overhead must have a driver that is stated in hours • Indirect effect of hours used • Variable overhead spending variance AH(AR - SR) • Variable overhead efficiency variance SR(AH – SH)

  5. Fixed Overhead Variances • Fixed budget variance Actual fixed overhead – budgeted fixed overhead • Fixed volume variance Standard rate(Denominator hours – Standard hours) or SR(DH-SH)

  6. Overhead Summary • The four overhead variances explain under- and over-applied overhead

  7. Coach Keen Says… • Reread entire chapter • Do homework 11-8, 11-15 & 11-16 • Rework all problems done in class • For Friday, April 22, read Chapter 12 pages 526-548. • Do all chapter 12 homework • Chapter 12 is a one day lecture Problem 11 – 23 page 515

  8. Coach Keen Says… • Work the review problems at the end of each chapter • Study for test by reviewing the chapters, homework, handouts, articles on WebCT, quizzes and problems done in class • Use the tutors • The workbook/study guide is available at the reserve desk at Milner Library • Chat on Tuesday night 9-11PM through WebCT • Extended office hours: Monday: 9:00-10:00 & 11:00-12:00 & 1:00-3:00 Tuesday 11:30-3:00 • E-mail questions • Review on Monday • Rest Tuesday night

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